This document provides an overview of key concepts in materials management from an academic course on industrial management and engineering economy. It covers topics like purchasing versus procurement, inventory types and control, ABC analysis for inventory categorization, dependent and independent demand, economic order quantity model, and the four basic costs associated with inventory including ordering, carrying, item, and stockout costs. The reorder point is defined as the minimum inventory level that triggers the need to reorder more items.
This document provides an overview of key concepts in materials management from an academic course on industrial management and engineering economy. It covers topics like purchasing versus procurement, inventory types and control, ABC analysis for inventory categorization, dependent and independent demand, economic order quantity model, and the four basic costs associated with inventory including ordering, carrying, item, and stockout costs. The reorder point is defined as the minimum inventory level that triggers the need to reorder more items.
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Check points of chapter 4 with short highlights.pdf
This document provides an overview of key concepts in materials management from an academic course on industrial management and engineering economy. It covers topics like purchasing versus procurement, inventory types and control, ABC analysis for inventory categorization, dependent and independent demand, economic order quantity model, and the four basic costs associated with inventory including ordering, carrying, item, and stockout costs. The reorder point is defined as the minimum inventory level that triggers the need to reorder more items.
This document provides an overview of key concepts in materials management from an academic course on industrial management and engineering economy. It covers topics like purchasing versus procurement, inventory types and control, ABC analysis for inventory categorization, dependent and independent demand, economic order quantity model, and the four basic costs associated with inventory including ordering, carrying, item, and stockout costs. The reorder point is defined as the minimum inventory level that triggers the need to reorder more items.
Industrial Management and Engineering Economy (Meng 5242)
Acadamic Year 2020/21 Instructor: Nahom Mulugeta
Chapter Four (Materials Management) check points with short highlights
1. Describe what is meant by materials management? - Materials management is the planning, organizing and controlling of the flow of materials from its initial purchasing stage, through internal operations, to the distribution of finished goods to the market place. 2. Describe the difference and similarity of purchasing and procurement - Purchasing implies the act of exchange of goods and services for money, whereas procurement is a generic term with a wider connotation for the total responsibility of acquiring goods and services OR - Procurement refers to the process of identifying, shortlisting, selecting, and acquiring suitable goods or services or works from a third party vendor through a direct purchase, competitive bidding, or tendering process while ensuring timely delivery in the right quality and quantity - Purchasing is the set of functions associated with acquiring the goods and services that an organization requires. Purchasing is a small subset of the broader procurement function. This process includes activities like ordering, expediting, receiving, and fulfilling payment 3. List and describe basic principles of purchasing Buying the right quality……… Buying the right quantity…….. Buying at the right price…….. Buying from the right source…….. Buying at the right time and place….. 4. List and describe procedures of purchasing Origination of Purchase Requisition (PR)….. Verification of Authority and Budget Expediting and follow-up……. Request for Quotation or Bids /Price Quotation/…….. Evaluation of Bids & Selection of Suppliers……. Issuing of Purchase Order…… Follow-up and expediting the Order….. Receiving, Inspecting and Storing….. Closing the Order….. 5. Describe what is mean by Inventory Inventory is generic term for the goods available for sale and various raw materials used to produce goods/service 6. List and describe types of Inventory Raw material…..Purchased but not processed Work-in-process……Undergone some change but not completed Maintenance/repair/operating (MRO)….Necessary to keep machinery and processes productive Finished goods…..Completed product awaiting shipment 7. What are functions of Inventory? To decouple or separate various parts of the production process To decouple the firm from fluctuations in demand and provide a stock of goods that will provide a selection for customers To take advantage of quantity discounts To hedge against inflation 8. What is inventory control? It refers all aspects of managing a company’s inventories: purchasing, shipping, receiving, tracking, warehousing and storage, turnover, and reordering 9. Inventory control basically deals with two problems: When should an order be placed and how much should be ordered (True/False) 10. What are objectives of inventory control? Read slides 9 and 10 11. Discuss the most widely used method of inventory control, ABC analysis. ABC analysis is an inventory categorization technique on the basis of annual ETB volume. It divides an inventory into three categories—"A items" with very tight control and accurate records, "B items" with less tightly controlled and good records, and "C items" with the simplest controls possible and minimal records. 12. Explain/describe independent and dependent demand by giving examples. Independent demand - the demand for item is independent of the demand for any other item in the inventory. Examples of Independent demand items are finished products/services Dependent demand - the demand for item is dependent upon the demand for some other item in the inventory. Examples of Dependent demand items are various input materials used internally to produce a final product/service. 13. List and discuss Inventory models which are used to determine when and how much order Basic economic order quantity (EOQ)…… Production order quantity (POQ)……. Quantity discount model (QDM)…….. 14. List and discuss the four basic costs associated with inventory Ordering and setup costs: are expenses for placing orders, expediting, inspection and changing or setting up facilities for homemade production. Carrying costs: on invested capital cover storage, handling, insurance, taxes, obsolescence, spoilage and data-processing costs. Item/Purchase costs: include the price paid, or the labor, material and overhead charges necessary to produce the item. Stock out cost: results from lost sales and possibly lost customers as a result of the variation in demand during lead time and the forecast 15. What is reorder point? A reorder point (ROP) is the minimum unit quantity of items that a manufacturing enterprise/company should have in available inventory before it needs to reorder more items.